Nomura sees potential risk in the entire consumption sector; positive outlook on commodity prices

Brokerage firm, Nomura, on Tuesday said it sees potential risk in the entire consumption sector, but maintain positive outlook on commodity prices.

In an interview to CNBC-TV18, Saion Mukherjee, managing director and and head of India equity research, said, "We have seen a significant correction in the market from almost 18.8 times at the peak in August to around 16 times one year forward earnings now. There has been a divergence since the start of the year between the bond yield and how the market multiples were moving. A lot of that excesses has got corrected."

"On a target, we have reduced it by a notch from 16 times, which we were using earlier to 15 times now and the key reason is that there are incrementally some macro-headwinds we are seeing at this point and that brings in some earnings risks,” he said.

According to Mukherjee, "Our analysis suggests that 10 percent depreciation at the Nifty level as almost 6 percent to the earnings. But if you take into account the positives and the negatives on an aggregate basis, we think there is around 5 percent risk to FY20, analysts estimate at this point in time. We look at FY20 from a slightly longer-term perspective. FY19 is a more challenging year than FY20."

"As growth slows down, we think companies’ ability to pass on commodity prices etc. would be lower, so that can hurt margins and earnings growth. So, those are some of the pockets, where we see clearly there is earnings risks and of course on the non-banking financial companies (NBFCs) side, there are risks emerging from potential slowdown in growth and also the net interest margin (NIM) compression there," said Mukherjee.